Appeal of Shared National Credit (Third Quarter 2024)

Background

A participant bank appealed the accrual status of a substandard-rated revolving credit during the third quarter Shared National Credit (SNC) examination.

Discussion

The appeal asserted that accrual treatment was appropriate due to enterprise value providing sufficient support and the repayment waterfall prioritizing the bank’s position among senior secured lenders.

Supervisory Standards

An interagency appeals panel conducted a comprehensive review of the appeal and relied on the supervisory standards outlined below:

• Comptroller’s Handbook, “Commercial Loans” (Narrative—March 1990, Procedures—March 1998)
• Comptroller’s Handbook, “Leveraged Lending” (February 2008)
• Comptroller’s Handbook, “Rating Credit Risk” (April 2001, updated June 2017 for nonaccrual status)
• OCC Bulletin 2013-9, “Leveraged Lending: Guidance on Leveraged Lending”

Conclusion

An interagency appeals panel concurred with the SNC examination team’s originally assigned nonaccrual status. Despite reference to different payment waterfall designations in the credit agreement, the nonaccrual designation is appropriate for the entire senior secured loan class because of the same first lien position and common source of repayment. In addition, enterprise value was insufficient to fully cover total senior secured debt.